Three from the Washington Post

The Washington Post has been doing a pretty good job of chronicling the ObamaCare follies lately. Here are three from the past week or so.

Strange Bedfellows. The first is by Sarah Kliff about how the tobacco industry and the American Cancer Society have joined forces to call for the overthrow of the tobacco user surcharge of 50%. Neither group thinks that smokers should be punished, the tobacco industry for obvious reasons and the Cancer Society because the surcharge will deter smokes from getting coverage at all. A spokesman for the group is quoted as saying, “We’re anti-smoking, not anti-smoker.” (Coulda fooled me.)

The article reports −

One analysis, prepared by the nonpartisan Institute for Health Policy Solutions, estimated that the tobacco surcharge could cause a low-income individual’s annual premiums to jump from $708 to $3,308.

This is because the premium subsidy is not allowed to offset the tobacco surcharge, so the individual is required to pay the full extra charge of 50% (or more) of the premium.

The groups will be working at the state level. States are allowed to forbid the rate-up for tobacco users and five states prohibited these add-ons even before the ACA.

Risk Pools Out of Money. N.C. Aizenman reports that the federal high-risk pools have run out of money one year before they were supposed to. So, they have stopped accepting new applicants even though only 100,000 are enrolled — far short of the 375,000 CMS predicted would be enrolled by the end of 2010. (See an earlier post at this blog.) Apparently, the people who enrolled are far sicker than expected. Which begs the question — how were the expectations derived? Answer — they were not. Congress simply picked a nice round number ($5 billion) as an appropriation with absolutely no research behind it.

Rate Shock for Young Adults. N.C. Aizenman also reports on how expensive coverage is about to get for young people. She writes −

Many young, healthy Americans could soon see a jump in their health insurance costs, and insurance companies are saying: It’s not our fault.

She attributes this to richer benefits than most currently buy, the requirement to accept all applicants, and the limits on age-based rating. But, she says, supporters of the law downplay the problem since many will have their premiums subsidized. She quotes Jonathan Gruber as saying −

The typical case I’m looking at is that roughly two-thirds of people are better off, once you factor in the tax subsidies, and one-third of them are worse off. You’re only worse off if you’re young and not poor. And “worse off” isn’t even the right word to use, because you’re still getting more generous insurance than you were before.

Mr. Gruber dismisses the idea that very many will refuse to purchase coverage because he thinks their premium payment will be around $1,600 to $2,000 a year and the tax penalty will be $700 for not participating.

Couple of problems with all this −

  1. The article understates the real problem, which is that carriers who choose to participate in the exchanges will have absolutely no idea what kind of risks they will be getting. The risk profile could be average or it could be very high. Without being allowed to ask medical questions, they can’t possibly know. So they will have to assume the worst. That means first-year premiums will be extremely high. If the experience is more favorable they can rebate some of the unneeded money. But if they rate below the potential risk there is no way they can recoup their losses.
  2. Subsidizing the paid premium does nothing to mitigate the underlying cost. It simply means it is being paid for by taxpayers rather than by the insured.
  3. Gruber’s estimate of paid premiums as low as $1,600 per year seems unrealistic, even with subsidies.
  4. The tax penalty will apply solely to people who pay income taxes, which 50% of the population does not. The currently uninsured tend to be low income so surely are not subject to income taxes. But even if they are, the tax penalty can be collected solely by seizing refunds. There will be a strong incentive for people to lower withholding to avoid refunds. (This may also have an effect on Federal revenues as people stop giving the government interest-free loans during the year.)

So, once again, the likelihood is that very few people, especially young healthy people, will bother enrolling and paying money for something they don’t think they will need. This means the risk profile of people in the exchanges will be very high and so will premiums. We have seen this over and over again in the states that adopted community rating and guaranteed issue. Having a feeble mandate will not alter reality.

Comments (22)

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  1. Responsible_Development says:

    And thanks to the tax subsidies, the 47% who do not pay taxes will rise to over 50%, officially a majority. Cue the quote about voting largess out of the public treasury…

  2. Buster says:

    Wow! American Center Society and tobacco industry in bed together?

  3. Bill Stuart says:

    Wow. I would think that the American Cancer Society would be all over this upcharge. If a 50-cent-per-pack tax increase deters smoking, imagine what a $2,500 or $5,000 premium difference will do for those who do smoke (turbocharges the incentives to quit) and those who are thinking about it (huge increase in their premiums). I’d expect ACS to be the surcharge’s strongest ally.

  4. David Lenihan says:

    Greg, good post. Employers will soon have tools that will essentially raise the cost of the health benefit for all employees and then provide rebates to non-smokers as rewards/incentives, while offering smoking cessation programs to smokers. If they don’t take it…that is their right…but they will pay more for the health benefit because they did not earn the reward.

  5. Higher Risk should equal higher costs says:

    If a person decides, of their own free will, that they want to continue to smoke and incur the scientifically proven higher risks for associated diseases and chronic illness….. then they too should also assume the higher cost of premiums for insurance and their ultimate care. The premium subsidy should only be available to the portion of insurance premiums of people who decide not to smoke. Can’t have your smokes and subsidies too!!

  6. Frank Timmins says:

    Well Greg, it seems that change is inevitable but some things never change. As most of us know, one of the biggest problem in our healthcare system has been the cost/value dysfunction resulting from employer paid health insurance premium.

    The taxpayers will now replace the employer as the funding mechanism that perpetuates the cost/value dysfunction, so nothing has really changed and we have not done one thing to fix this mess.

  7. If insurance policies were lifelong then, because smokers die earlier, and everyone dies eventually, smokers probably would not pay more.

    But if premiums cover only the next year then they would have to be higher for smokers.

  8. Ron Bachman says:

    The premium increase for younger ages is simple math. It doesn’t take an actuary to figure this one out.

    Take two people: age 20 and age 60.

    The true actuarial expected cost of the 60 year old is 5 times that of the 20 year old. Take a simple example: the 60 year old cost is $5,000 and the 20 year old cost is $1,000. But Obamacare says that insurers can charge only 3 time more for the 60 year old than the 20 year old.

    To insure these two individuals the insurer still needs a total of $6,000 to pay claims.

    The solution: lower the age 60 premium 10% to $4,500 and raise the age 20 premium 50% to $1,500. We now have the mandated 3 times ratio. The same $6,000 total premium is collected from the two parties, but the premium for the age 20 person is increased by 50%.

    60% of the uninsureds are less than age 35. Pre-ObamaCare, they didn’t buy insurance because the cost was too high and the policies were not responsive to their needs.

    Now why would we expect more young people to buy under Obamacare when the cost just went up by at least 50%?

    BTW, how does the mandated pricing ratio work for the catastrophic plan that is available mainly to those under 30?

    Look for the headlines that the uninsured have increased under ObamaCare. SHOCKING!

  9. Jonathan C says:

    Kilff’s part threw me off a little. How does it make sense for the Cancer Society to want to overthrow the user surcharge just to keep smokers from losing their coverage? If they didn’t smoke, they probably wouldn’t need coverage in the first place! And if this surcharge is successfully overthrown that will just create more incentive for these people to continue smoking. Seriously?

  10. Peterson says:

    “We’re anti-smoking, not anti-smoker.”

    – What a quote!

  11. Greg Scandlen says:

    Hey, folks, I don’t have any problem with a smoker’s surcharge. In fact I am a big fan of risk-based rating. But higher costs are associated with lots of things — obesity, practicing unsafe sex, age, gender, family history. Singling out smoking as the sole adjustment is just politics.

  12. Henry GrosJean says:

    I still would like to know who and how they will determine who smokes! Assumes details are forthcoming.

  13. David Lenihan says:

    Determining who smokes is what makes the reward/incentive piece work…you submit to workplace testing and annual PFT (pulminary function testing) in order to keep your reward. It’s fairly easy in a blog like this to determine who the smokers are!!

  14. Susan says:

    While I believe in the concept of the smoker “penalty”, the fact is most insurers won’t even use this factor. Since the exchanges are “computer-based”, people will just say they don’t smoke to get lower premium so the insurance companies aren’t going to deal with this – it’s more trouble than it’s worth to them.

  15. Jordan says:

    Hah either that, or the tax is only applied to those who can’t show a current Private Insurance Card.

  16. Gabriel Odom says:

    “First they came for the smokers, and I said nothing for I was not a smoker. Then they came for the soda drinkers, and I said nothing because I did not drink soda. Then they came for the meat eaters, and I said nothing because I was a vegetarian.
    Then they came for me, and there was no one left to speak for me.”

  17. David Lenihan says:

    The smokers, hyper-tensives, overweight, meat-eating, video game playing, sedentary, soda drinkers, un-safe sexers and drug users recently came to me and said: You must pay for our over-indulgences and because there are many of us, we will get the govt to put in rules that you can’t charge us more for our health care even though we will spend (or more accurately…cause to have spent) much more than you who lead a life of goodness (or more accurately Goodman-ness). Anyway…I liked your post Gabriel.

  18. Frank Timmins says:

    David, unless one rejects the notion of insurance out of hand, one must accept some level of pooling of risks. This is not to say that there can’t be adjustments of some sort for risks. But personally I’m not sure we get accurate risk information related to lifestyle impact upon insurance costs. While some of the obvious lifestyle related disease caused by “over-indulgences” are clear, sometimes “early death” through some type of self destructive activity is less costly than end of life treatment for that life lived “squeaky clean”.

    In any case I think the point is that the government has no business making the calls one way or another.

  19. David Lenihan says:

    Hi Frank, I agree with you. In fact, I think that it is too hard to ever “underwrite” this issue and the govt should not really be in it either…or for determining premium ranges…they are not qualified to do so and so anything that they do will be corrupted by campaign donations. What I was trying to get at is that employers…to the extent that they stay in the health benefit business, will have a vested interest in healthy workers…and that if they incent workers to be non-smokers by rewards…such as premium rebates..they should be free to do so. How much those rewards are should be up to the employer ad might be based on their own calculation of what it would take to make someone (or 65% of their smokers…just to pick a number)quit smoking and have a healthier lifestyle. The individual should always be free to accept the reward or not.

  20. Greg Scandlen says:

    David,
    You are opening up a huge issue here. Yes, employers have the right to penalize whoever. But they risk alienating some portion of the work force in doing so and might lose some awfully valuable employees (all of the whiz-bang computer guys I know are fat). I spoke to the medical director of a Fortune 100 company a while ago, and he wanted to police how employees use weed whackers at their homes on the weekends. I told him it will cost a lot more to train the new employees he will have to hire after the current ones quit.

    Too many employers have developed a plantation mentality where they think they have the right to totally control workers since they pay for the health care. My solution is to pay each employee what he/she is worth to the company, period. Then they can buy their own insurance.

    And this may be the scariest thing about government health care. If employers are thinking like plantation owners due to paying for health care, just imagine how the government will treat citizens.

  21. David Lenihan says:

    Dear Greg, You have forgotten more about healthcare in the US than I will ever know. I, as always, will differ to you.

    Cheers, David

  22. John Kumar says:

    “We’re anti-smoking, not anti-smoker,” that is a classic quote, I am putting this up on my facebook favorite quote.